Despite accord, Sweetheart debt service still a burden

August 31, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK — In an Aug. 31 article about the purchase of Sweetheart Cup by American Industrial Partners, The Sun used information supplied by the company's underwriter that incorrectly priced the bonds used to make the purchase. The correct interest rates are 10.5 percent for $110 million in bonds and 9.625 percent for the remaining $190 million in bonds.

The Sun regrets the errors.

NEW YORK -- Although lightened of the crushing debt load that has plagued it for the past five years, Sweetheart Holdings Inc. will still be paying off high-interest junk bonds for another decade, according to Wall Street bond analysts familiar with the company and its newly completed financing.

The former Maryland Cup, which still employs 2,500 in Owings Mills and is one of the dominant cup makers in the country, was sold in May by Morgan Stanley Group Inc. to American Industrial Partners.


AIP, a limited partnership headed by several former top executives, promised to cut the Chicago-based company's debt and infuse it with capital.

While the deal cuts the company's debt by $200 million, Moody's Investor Service said it left the maker of Eat-It-All ice cream cones and Lily cups with still relatively little cash to cover its interest payments.

"Despite an approximately $100 million cash infusion from Sweetheart's new owners and a reduction in borrowing, debt service requirements remain high. It is still a highly leveraged company," said David Sotnick, an analyst with Standard & Poor's Ratings Group.

The $300 million in bonds, which were settled yesterday, carry a 10.5 percent interest rate. The bonds mature in 2003 but could be called five years earlier. Both Moody's and S&P gave the bonds "junk" ratings, meaning they are not considered investment grade.

S&P rated the company's $190 million in secured debt B+ and its $110 million in unsecured debt B-, while Moody's rated the secured debt Ba3 and the unsecured debt B2.

The remainder of the $441 million purchase price comes from $107 million invested by AIP and $34 million invested by General Motors Corp. employee benefits plans, which are investing through First Plaza Group Trust.

Sweetheart, which generates an estimated $900 million in revenues and has 8,000 employees, more than doubles AIP's size.

AIP, which is privately held and run by former CEOs of Goodyear Tire and Rubber Co., Mead Corp. and Stanley Works, now owns six industrial companies with 12,000 employees and $1.4 billion in revenues.

The company makes about 80 percent of its revenues producing disposable food cups, trays, plates and other items for fast-food restaurants and delicatessens.

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